12:38 s Assignment 2 - June 2020.docx Compute the NPV, IRR and payback period of this project. Should the project be accepted? Please explain in detail. Question 3 An investor holds the shares of ABC Company. The investor fears that the market may drop in near future. He is now considering the following options strategies: Long put with strike price of $40 and premium of $4. Complete the following table for both strategies and graph the combined terminal position. Please also comment the effectiveness of the above hedging strategy. Expiration date option payoff Initial option premium Combined terminal position value Expiration date ABC stock price 25 30 35 40 45 50 55 60 65 70 75 Question 4 Sally Mobil is a public limited company in the Hong Kong Stock Market. The Board of Director suggests either issuing bonds or shares in order to raise capital for a new project. a. Suppose your company issues 4 percent semi-annual coupon bond with a face value of $1,000 that matures for resting 18 years. If the yield-to-maturity is 5 percent, what is the market price of this bond? b. If the yield-to maturity is dropped by 50 basis points (i.e. 0.5%), compute the market price of the bond. c. Suppose Sally Mobil just paid a dividend of $3. It is expected to increase its dividend by 2 percent each year. If the required return is 12%, how much should the fair price of the common stock be? d. The company's outstanding preferred stocks paid dividend of $3.5 per share last year. If the required return of the preferred stocks is 9%, compute the fair price of the preferred stock. END 12:38 s Assignment 2 - June 2020.docx Compute the NPV, IRR and payback period of this project. Should the project be accepted? Please explain in detail. Question 3 An investor holds the shares of ABC Company. The investor fears that the market may drop in near future. He is now considering the following options strategies: Long put with strike price of $40 and premium of $4. Complete the following table for both strategies and graph the combined terminal position. Please also comment the effectiveness of the above hedging strategy. Expiration date option payoff Initial option premium Combined terminal position value Expiration date ABC stock price 25 30 35 40 45 50 55 60 65 70 75 Question 4 Sally Mobil is a public limited company in the Hong Kong Stock Market. The Board of Director suggests either issuing bonds or shares in order to raise capital for a new project. a. Suppose your company issues 4 percent semi-annual coupon bond with a face value of $1,000 that matures for resting 18 years. If the yield-to-maturity is 5 percent, what is the market price of this bond? b. If the yield-to maturity is dropped by 50 basis points (i.e. 0.5%), compute the market price of the bond. c. Suppose Sally Mobil just paid a dividend of $3. It is expected to increase its dividend by 2 percent each year. If the required return is 12%, how much should the fair price of the common stock be? d. The company's outstanding preferred stocks paid dividend of $3.5 per share last year. If the required return of the preferred stocks is 9%, compute the fair price of the preferred stock. END